Bailing out the carmakers will take us back to the 1970s

So we've bailed out the banks, and now everyone else is forming an orderly queue for state aid – like the carmakers. They say that they need to be helped through the recession so that, when demand does pick up again, they will still have the factories and skilled workers to produce them.

Past bailouts did not create a thriving car industry Photo: Reuters

So Peter Mandelson, the Business Secretary, plans to give them a blank cheque on the Bank of England, in order that they can offer us all cheap loans to buy more of their cars.

It's ingenious, because it makes people think that the government is helping us customers – after all, we get cheap loans – rather than the carmakers. But it's a straight subsidy to the industry, none the less.

Apart from the fact that it was too much cheap credit that got us into this mess in the first place, I wonder where the Business Secretary thinks this money is going to come from? The answer is that it will come from individuals, shops, cafes, hairdressers and other businesses that are already struggling to pay their council tax, national insurance, and business rates.

So they will be cutting back, making existing employees redundant, and not taking on new ones. It will be in ones and twos, so nobody will notice – as they would if a big car factory closed. But they will be thousands of ones and twos. Every pound that saves a job in carmaking (most of it in safe Labour areas, of course) is a pound that kills a job somewhere else.

UK carmaking has been on the skids as long as I remember. They demanded – and got – bailouts in the 1960s and 1970s on a seemingly regular basis. The fact is that we have high labour costs, onerous workplace regulation, high taxes, and expensive transport. It makes sense for car production to move to emerging countries where cars can be produced for a lot less money. It used to be Japan and Korea, now it's Slovakia, India, and even China.

But is it just a case of short-term cash being needed to get through a rough patch without the industry's hard-built capital being destroyed forever? Well, it could be that it's only Gordon Brown's vast hot-air boom that has kept a lot of UK carmaking afloat anyway.

Had it not been for that, we'd probably have been buying a lot fewer – helped, of course, by the government's own eco-taxes on motoring that are deliberately intended to wean us out of our cars.

Cars are a luxury. When things are going well, people buy luxuries, but when things are bad they stop, or put off the decision to buy until things look brighter.

If the ups and downs of the economy undulate like the South Downs, carmaking and other luxuries such as holidays housebuilding soar up and down like the Alps. Sensible companies hedge on that basis, and squirrel money during the good times to get through the bad. So asking us for a bail-out is a bit of a cheek.

And most carmaking in Britain is foreign-owned anyway. Jaguar Land Rover is owned by an Indian billionaire. If it needs cash, why shouldn't it come from him rather than from cash-strapped British taxpayers?

Vauxhall belongs to General Motors; then there's Toyota, Nissan, and Honda. We could quite easily put taxpayers' cash into their British ends, only to find plugs being pulled in Detroit or Tokyo.

Subsidies aren't the way to help manufacturing. We tried that in the 1960s and 1970s, and it didn't work. The best policy is to cut the costs on making things in Britain. That means lower taxes, for one thing; making sure that public-sector workers are no longer getting paid for doing nothing; and focusing state healthcare and welfare on those who really need it so that national insurance can come down.

Slashing the costly and uncompetitive workplace regulation that we signed up to, in order to convince Brussels that we were good Europeans, would encourage entrepreneurs.

Otherwise, before long, the entire country will end up bailing itself out at its own cost. That just means young talent will go abroad, exactly like I and others did during the "brain drain" years of the 1970s.